Lord Farquaad’s Inflation Kingdom | The Daily Peel | 4/13/2023

Apr 13, 2023 | Peel #439

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Happy Thursday, apes.

Or, as the wise among us would say, Happy Almost Friday.

And thank whatever god or lack thereof that you believe in for that because this week, even with the most important CPI of all time, has been an absolute snoozer. But maybe today’s PPI report or numbers from Delta Airlines will finally rock the plane a little bit (no pun intended).

Equity markets rode another lazy day, bouncing around with hardly any conviction to be found to ultimately end mostly lower, but not by much. Of the major indices, the Nasdaq led lower with an 0.85% drop, while the Dow managed to only lose 0.11%

Yields didn’t exactly get the people going, either. The 2-year bill held above 4% and gradually sloped higher for most of the day, seeing a rapid and quickly reversed drop all the way to 3.92% late in Wednesday’s trade. For Treasury yields, that’s some serious movement to see in a matter of minutes. T-bills are supposed to be your grandfather’s grandfather of the investing world, not your drunk uncle.

Let’s get into it.

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Don’t miss your chance to invest in RYSE before it becomes a household name.

Banana Bits

• When Buffett and Powell agree in sentiment, that’s probably either very good or very bad; I’ll let you decide for yourself
• Well, that didn’t take long. Despite not even coming close to its first birthday yet, ChatGPT is already a better portfolio manager and trader than you
• It’s a battle of 1% vs. 1%: Elon Musk, the top dawg of the 1%, is squaring off with NPR on Twitter over the funding received by the media outlet from the Federal government, which amounts to 1% of NPR’s revenue
• You and your friends have all had the infamous debate of 1 trillion lions vs. the Sun, but what about the Sun against 1 trillion trees?

Macro Monkey Says

Direction, Direction, Direction

The Civil War, World War II, and the Great Inflation of 2022-23 have been some of the most challenging and toll-taking events to ever occur in the United States.

Alright, fine, one of those may not be like the other, but you sure wouldn’t know it if you’ve been on Twitter, watched the news, or gone outside in the last year. The War on Inflation, unlike those on Terror or Drugs, for example, might actually be a winnable battle.

A key psychological level for inflation was reached yesterday, according to March’s CPI report. Over the last 12 months, consumer prices rose by an average of 5.0% for the period ended in March and just 0.1% on a monthly basis.

Yes, we’re still more than 2x the Fed’s annual target, but we’re moving in the right direction. So, a win is a win. We’ll take it.

Mr. Market, for maybe the first time, maybe ever, had a relatively relaxed reaction to the report. Equities were mostly lower despite March’s print coming in below the 5.2% guesstimate by economists and declining substantially from the 6.0% reached in February. That’s a 16.67% decline in the growth rate of inflation, not to be confused with deflation or declining prices.

You never want to analyze one data point on its own, but considering this decline, along with the slowing job growth and declining demand for goods shown in the manufacturing numbers of last week, as well as those f*cking massive bank runs of last month, the evidence is certainly there to make the case that the Fed is winning.

Now, the main question surrounds if the Fed has overtightened. This is exactly why we can’t have nice things; as soon as one problem assuages, another scarier one emerges. According to minutes at the last Fed meeting released yesterday, their primary concern for the latter half of the year is recession, not inflation.

Much of the debate around recession, “soft landing,” and all that jazz comes down to varying definitions of these vague ideas. Some say you can’t beat inflation without a recession, others say you need job losses to qualify for a recession, and the bravest among us are just out here trading and/or buy-and-holding without a second thought. These are the true Chads of the financial realm.

Sharp declines in energy commodities were lifted in aggregate by the still-rising cost of shelter, as shown through the lagged and downright unreliable metric of “owner’s equivalent rent,” which tends to overstate costs and take its sweet time to react to the broader macro theme.

The point is that we’re still in Lord Farquaad’s Kingdom of Far Far Away when it comes to finally returning to healthy inflation. We’re still chugging right along in the right direction for now. Let’s see how JPow & Co. manages that going forward. Given these morons were still buying MBS in March of last year, we’re a little nervous today, to say the least.

What's Ripe

Triton International ($TRTN) ↑ 32.26% ↑

• Deal activity is back. Congrats to all the IB apes and others who hate themselves enough to do that work as deal flow continues to come back from the dead.
• Maritime freight shipment became a hot commodity during the pandemic, so hot in fact that Brookfield Infrastructure is willing to throw $4.7bn at it. As one of the largest players in the marine cargo game, Triton was a big benefactor here.
• Shares in Triton closed almost exactly in line with the acquisition price, suggesting Mr. Market doesn’t expect much, if any, trouble with this deal getting the green light from Papa Government.
• Brookfield shareholders were loving it at first, with shares up 5.9% out the gate, only to quickly realize that means they have to pay $4.7bn for this sh*t, finishing nearly over 6.1% lower.

MongoDB ($MDB) ↑ 6.94% ↑

• Sometimes all it takes is a little nudge, and yesterday, MongoDB got that and then some from analysts at Morgan Stanley.
• Shares in the advanced database platform provider ripped on the news as the suicidally depressed shares certainly needed the help.
• According to MS, shares could be worth as much as $270/sh, a 19.4% gain from yesterday’s close. Some nerd sh*t called “cloud optimization initiatives” is apparently an area in which MongoDB wields a hefty lead over the rest of the pack.

What's Rotten

Peloton ($PTON) ↓ 11.23% ↓

• It was a rocky, steep downhill ride for Peloton yesterday, and I’m not sure what was worse: the stock’s performance or that sad attempt at a pun.
• In this case, Morgan Stanley was the villain. Their analysts came out and warned the Street of slowing growth, something that arguably should’ve been not only expected but obvious now that we can go stare at each other in gyms once again.
• Despite gaining nearly 50% since late September, shares remain +93% off from their highs. I mean, this is the clearest acquisition target of all time, right? Wonder if anyone’s ever actually gonna come in.

American Airlines ($AAL) ↓ 9.22% ↓

• Welp, American might not be reporting earnings for another week or so, but they’re getting ahead of the hype and taking everyone else down with them.
• The major airline came out with a stark profit warning for its upcoming quarterly report, which, based on the traumatizing price of tickets these days, seems impossible, but I guess those labor and fuel costs are packing a punch.
• Maybe they’re embezzling or something, who knows, but either way, this announcement roiled the rest of the industry, too. Delta has a shot at picking things up with its quarterly report early tomorrow morning, so we’ll see if things take off or continue to crash and burn.

Thought Banana

Thank You for *Vaping

Who remembers the good ol’ days of walking to a school bathroom and feeling like you just walked on stage at a rap concert? Whether it was box mods or disposables during your time, the abundant smoke clouds had to make you feel some type of way.

But now, the company behind the smoke is catching all the smoke for the Jupiter-sized cloud it injected into the lungs of 15-year-olds across the country.

On Wednesday, Juul announced it had reached a settlement with 6 states as well as DC to payout $462mn over the next 8 years to resolve “claims” of youth vaping addictions caused by the company.

I say “claims” because every single person in America between the ages of 14 and 30 is all too aware of the absolute epidemic of chemical suckdowns going on in the Land of the Free.

According to CNBC, in late July of last year, Marlboro-maker Altria’s $13bn investment in the e-cig maker had lost 95% of its value at the time. As Juul is still a private company overall, we don’t know what that value would be reflected as today, but I don’t think many would argue that things have gotten too much better.

This settlement represents just about 15% of the total that Juul has agreed to pay out to a total of 47 states, 5,000 individuals, and a plethora of local governments too. Going by the above implied market value, that’s penalties equivalent to almost a quarter of the company’s value. If the founder’s goal in starting the company was to start a charitable organization committed to funding governments across the company, it’s been a smash success.

Moreover, regulations like Massachusetts’ ban on flavored nicotine products have only poured salt in their wounds. Legislation and punitive action like this have, obviously, been a major distraction to the e-cigarette maker and almost certainly led to a slowdown in growth and innovation that could have otherwise occurred. This has allowed firms like Shenzhen iMiracle Technology, the maker of popular disposable vapes like Elf Bar, to snatch up a sizable chunk of that market share.

Disposables aren’t ideal for a few reasons, including the outsized waste produced by throwing away full-a** batteries, and don’t even get me started on the power the FDA would have over a firm like Juul compared to the Shenzhen-based maker above…

But still, vaping obviously remains super cool and sick and makes everyone who does it immediately add 3.5pts to their rating out of 10. And with Juul appearing to round the final corner of its legal troubles with these settlements, nature is finally healing.

The big question: Will vaping one day become an actually investable industry? How much does Altira regret their investment in Juul, and will they ever lose that sense of regret? What’s the next vaping trend to come down the pipe?

Banana Brain Teaser

Yesterday — James ordered a fishing rod, priced at $3.56. Unfortunately, James is an Eskimo who lives in a very remote part of Greenland, and the import rules there forbid any package longer than 4 feet to be imported. The fishing rod was 4 feet and 1 inch, just a little too long, so how can the fishing rod be mailed to James without breaking the rules? Ideally, James would like the fishing rod to arrive in one piece.

Insert the fishing rod into a box that measures 4 feet on all sides. It will fit in the box diagonally with room to spare.

Today — It’s 50 bananas off the Consulting Interview Course for the first 3 correct respondents. LFG!

What is made of wood, but can't be sawed?

Shoot us your guesses at [email protected] with the subject line “Banana Brain Teaser” or simply click here to reply!

Wise Investor Says

“Investors should be aware of the Fed’s dual mandate to promote price stability and maximum employment, as these goals can sometimes be at odds with each other.” — Bill Gross

Happy Investing,

Patrick & The Daily Peel Team

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